Land tax and Stamp Duty changes for Foreign Property Investors
April 4, 2017
From 1st January 2017, all foreign owners of residential real estate in Victoria and NSW must pay an increased land tax surcharge. The State Revenue Office in Victoria refer to foreign investors as absentee owners and will be cracking down on any disregard to their new rules.
Land Tax is payable where the total value of all Victorian property you own as at 31 December minus exempt land such as your home, is equal or exceeds the threshold of $250,000. The Value is the unimproved value of the land excluding capital improvements such as buildings. These values can be found on council rates notices. For land held in trusts, the threshold is $25,000, resulting in a lot more properties being captured where they are held in trusts.
Previously, residential real estate in Victoria owned by foreign investors paid a 0.5% surcharge on their land tax. This rate has increase to 1.5% from 1st January 2017. The increase will also impact on Trusts who either have unitholders or specified beneficiaries who are non-residents. Because of these changes there will be many trusts who may be unaware that they are affected with these new rules and need to act to avoid the surcharges and penalties.
The State Revenue Office is warning those that don’t voluntarily disclose the absentee status of owners, including specified beneficiaries of trusts will face penalties of 20% and above.
If you are planning on purchasing a property through a trust, or already own a property as part of a trust, we suggest that you contact your accountant and discuss what can be done to avoid these potential additional taxes.
To advise State Revenue Office of your absentee owner status you need to access the State Revenue Office Portal and follow instructions. The website can be found at http://www.sro.vic.gov.au/node/5773
These recent Land tax changes come on the back of Stamp Duty changes from 1 July 2016 which lifted the stamp duty surcharge for foreign investors from 3% to 7%. To add salt to the wound the government has recently announced the planned removal of the Off the Plan Stamp Duty Concession from 1st July 2017 where the property is purchased as a holiday home or for investment purposes. This will see investors pay stamp duty on the full value of the contract when purchasing off the plan rather than the reduced duty based on land and construction to the time of signing the contract.
The above changes highlight the importance of getting good advice on the right structure before purchasing property in Victoria.